STACK 
ANNEX 


5 

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THE  ALDRICH  CURRENCY  SYSTEM 


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legional 
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THE  ALDRICH  CURRENCY 
REFORM  SYSTEM  ANALYSED 


How  the  proposed  system  would  work  in  practice — 
What  its  application  would  mean  for  the  large 
and  small  banks  of  the  United  States — The  creation 
of  a  discount  market — The  gradual  elimination 
of  the  bond  secured  currency  and  the  granting  of 
emergency  loans  in  time  of  need — An  interpretation 
of  the  most  extraordinary  proposal  yet  made  for 
reforming  the  currency  system  of  the  United  States 


1911 


WITH  THE  COMPLIMENTS  OF 

THE    FOURTH    NATIONAL    BANK 
OF  THE   CITY  OF  NEW  YORK 


n:  TROW  PRESS 

HEW  YORK 


SENATOR  ALDRICH'S  PROPOSAL 

No  suggestion  made  in  the  last  decade  for  reforming 
the  currency  system  of  the  United  States  has  elicited  the 
general  interest  excited  by  the  extraordinary  system  pro- 
posed by  Senator  Aldrich  in  his  letter  to  the  National 
Monetary  Commission  under  date  of  January  16th  last. 
Its  provisions  have  since  been  carefully  studied  by  bankers 
throughout  the  United  States  and  in  Europe.  The  pro- 
posal was  necessarily  informal,  and  as  yet  nothing  has 
been  done  toward  drafting  a  bill  enacting  its  essential  fea- 
tures. Before  anything  along  that  line  is  accomplished  a 
great  deal  of  educational  work  will  have  to  be  undertaken 
in  the  effort  to  familiarize  the  people  of  the  whole  country 
with  the  advantages  of  the  proposed  service,  and  its  adapt- 
ability for  strengthening  the  weak  spots  of  a  banking  sys- 
tem that  is  made  up  of  some  22,000  separate  institutions 
conducted  under  national  and  state  supervision. 

The  problem,  then,  is  as  big  as  the  country.  It  concerns 
the  welfare  of  every  business  man  who  has  relations  with 
a  bank.  For  that  reason  the  question  should  be  studied 
without  prejudice  and  with  appreciation  of  its  importance 
to  this  and  future  generations.  The  panic  of  1907  empha- 
sized the  defects  of  our  present  currency  system  in  a  way 
that  was  little  realized  until  the  scramble  for  reserve  money 
and  the  unprecedented  currency  famine  disclosed  the  utter 
lack  of  co-operation  among  the  banks  as  a  whole. 

Senator  Aldrich's  proposal,  as  made,  apparently  guar- 
antees the  mobility  of  reserves,  the  elasticity  of  note 
issues,  and  the  creation  of  a  discount  market  similar  to 
that  which  has  contributed  so  largely  to  London's  com- 
mercial prestige.  Many  points  remain  to  be  worked  out — 
notably  those  providing  for  the  organization  of  national 
trust  companies,  federal  savings  banks,  and  foreign  banks 
whose  stock  would  be  controlled  by  banks  in  the  United 
States — and  it  is  possible  that  new  features  may  be  added. 

[Page  3] 

2003546 


Senator  Aldrich's  Proposal 

In  the  effort  to  show  what  Senator  Aldrich's  system 
would  mean  in  actual  practice  the  following  analysis  of 
the  important  provisions  has  been  attempted.  The  pro- 
visions are  viewed  so  differently  by  different  experts  as 
to  insure  continued  discussion  for  months  to  come.  In 
the  following  pages  the  subject  matter  is  divided  into  sec- 
tions, so  as  to  make  the  different  provisions  instantly  ac- 
cessible. To  this  end  an  index  on  the  last  pages  will  be 
helpful. 

The  aim  is  to  give  in  each  paragraph  the  gist  of  Sena- 
tor Aldrich's  suggestion,  with  such  comment  as  shall 
make  clear  its  real  significance.  The  intention,  therefore, 
is  not  to  speak  for  or  against  the  plan,  but  rather  to  inter- 
pret its  essential  features  in  the  light  of  current  discussion. 


[Page4j 


PART  I.-MACHINERY 

The  Reserve  Association  of  America 

(1)  The  Reserve  Association  of  America  is  the  cen-  The 
tral  organization  of  the  whole  system.    Its  functions  need  Central 
to  be  kept  clearly  in  mind  by  all  who  wish  to  gain  a 
broad-gauge  view   of   Senator   Aldrich's  elaborate   pro- 
posal for  currency  reform.     Headquarters  of  the  Asso- 
ciation will  be  at  Washington  at  the  seat  of  the  national 
government,  just  as,  in  the  case  of  the  great  state  banks 

of  Europe,  the  head  office  is  usually  located  in  the 
capital  city. 

Since  the  Reserve  Association  of  America  will  act  as 
the  Government's  fiscal  agent  it  will  do  virtually  all  of 
the  Government's  business  that  is  now  transacted  by  the 
national  banks.  It  will  be,  to  all  intents  and  purposes,  a 
bank  of  banks.  Besides  this,  it  will  be  the  parent  insti- 
tution of  fifteen  branches,  each  branch  being  the  head- 
quarters for  the  affiliated  national  banks  of  a  separate  dis- 
trict. While  the  authorized  capitalization  of  the  Reserve 
Association  of  America  is  placed  at  $300,000,000,  only 
half  of  this  amount,  or  $150,000,000,  is  to  be  actually 
paid  in.  If  the  state  banks  and  trust  companies,  with 
the  national  banks,  should  enter  the  system  in  large  num- 
bers, the  maximum  paid-in  capitalization  might  easily  be 
required.  The  Association  will  be  exempt  from  state  and 
local  taxation,  except  taxes  upon  real  estate  owned  by  it. 
Its  charter  will  run  for  fifty  years. 

(2)  Any  national  bank  may,  but  none  shall  be  obliged  stock;  how 
to,  subscribe  for  the  capital  stock  of  the  Reserve  Asso-  DUtributed 
ciation  of  America.     The  subscription  of  each  national 

bank  must  equal — no  more  and  no  less — -20  per  cent,  or 
one-fifth,  of  its  (the  bank's)  capital  stock.  In  other 
words,  a  national  bank  capitalized  at,  say,  $25,000,  could 

[Page  5] 


The  Aldrich  Currency  System 


Proportion. 
Ownership 
Always 
Maintained 


Dividend* 


subscribe  for  $5,000  of  the  capital  stock  of  the  Reserve 
Association  of  America.  Only  half  of  this  subscription, 
or  $2,500,  would  be  paid  in  at  once ;  the  remaining  $2,500 
would  remain  a  liability  of  the  stockholders,  subject  to  call. 

(3)  None  but  national  banks   (this  term  includes  all 
state  institutions  that  take  out  Federal  charters  under 
the  terms  of  this  proposal)    can  own  stock  in  the  Re- 
serve Association  of  America,  and  then  only  to  the  extent 
of  one-fifth  of  their  own  capital  stock.     This  proportion- 
ate interest  of  each  bank  affiliated  with  the  Reserve  Asso- 
ciation of  America  must  always  be  maintained.    Where 
a  bank  increases  its  capital  stock  it  shall  subscribe  for 
additional  shares  in  the  Reserve  Association  of  America 
to  the  extent  of  one-fifth  of  that  increase.    Where  a  bank 
decreases  its  capital  stock  it  must  surrender  shares  in  the 
Reserve  Association  of  America  to  an  amount  equal  to 
one-fifth  of  that  decrease.     If  a  bank  goes  into  liquida- 
tion it  must  surrender  all  its  holdings  of  the  stock  of  the 
Reserve  Association  of  America. 

In  cases  where  a  bank  increases  or  decreases  its  capital 
stock  after  joining  the  Reserve  Association  of  America, 
the  adjustment  for  the  new  shares  subscribed  for,  or  the 
old  shares  surrendered,  shall  be  on  the  basis  of  the  then 
book  value  (of  the  Reserve  Association's  stock)  as  shown 
on  the  balance  sheet  of  the  Reserve  Association  of  Amer- 
ica. In  cases  where  the  shares  of  the  Reserve  Association 
of  America  are  surrendered  they  must  be  immediately 
canceled. 

(4)  The  Reserve  Association  of  America   shall  dis- 
tribute, after  all  expenses  and  taxes  are  paid,  4  per  cent 
cumulative  dividends.     When  more  than  4  per  cent  is 
earned  one-half  of  the  excess  shall  go  to  surplus,  until 
that  surplus  reaches  20  per  cent  of  the  paid-in  capital; 
one-fourth  shall  be  paid  to  the  Government  of  the  United 
States,  and  one-fourth  to  the  stockholders,  or,  in  other 
words,  to  the  banks  affiliated  with  the  Reserve  Associa- 
tion of  America. 

[Page  6] 


The  Aldrich  Currency  System 

No  larger  dividends  than  5  per  cent  shall  be  declared 
by  the  Reserve  Association  of  America.  All  excess  earn- 
ings must  thereafter  go,  one-half  to  surplus  and  one-half 
to  the  Government.  After  the  maximum  dividend  rate  of 
5  per  cent  has  been  reached  and  the  surplus  of  the  Reserve 
Association  of  America  amounts  to  20  per  cent  of  its 
paid-in  capital,  all  excess  earnings  shall  go  to  the  United 
States  Government. 

Local  Associations  of  National  Banks 

(5)  All  subscribing  banks  shall  join  what  is  known  as  Organization 
a  "  Local  Association  of  National  Banks."     Each  such 
organization  shall  be  composed  of  ten  or  more  banks  hav- 
ing a  capital  and  surplus  of  not  less  than  $5,000,000.    All 

these  associations  shall  be  grouped  in  fifteen  divisions  to 
be  known  as  "districts."  (See  Section  1.) 

These  associations  must  cover  the  entire  territory  in 
which  all  of  the  country's  7,218  or  more  national  banks 
are  located.  Every  bank  that  belongs  to  the  Reserve 
Association  of  America  must  join  the  local  association 
of  the  territory  in  which  it  is  located. 

(6)  The  scheme  of  control  for  the  local  associations  is  Directors 
very  ingenious.     Senator  Aldrich  provides  that  the  num-  of  Local 
ber  of  directors  may  be  determined  by  the  by-laws  of  the  Associations 
local  association.     Three-fifths  of  that  number  shall  be 

chosen  by  ballot  cast  by  the  members  of  the  local  asso- 
ciation, each  member  bank,  irrespective  of  its  size,  having 
one  vote.  Two-fifths  of  the  whole  number  of  directors 
of  the  local  association  shall  be  elected  by  the  voting  rep- 
resentatives of  these  banks,  but  in  voting  for  these  addi- 
tional directors  each  voting  representative  (of  a  member 
bank)  shall  be  entitled  to  cast  as  many  votes  as  are  rep- 
resented by  the  number  of  shares  in  the  Reserve  Asso- 
ciation of  America  that  his  bank  holds.  There  shall  be 
no  proxies  at  these  elections.  All  voting  must  be  done 
by  either  the  president,  vice  president,  or  cashier  of  the 
banks  represented. 

[Page  7] 


The  Aldrich  Currency  System 

In  effect  this  scheme  would  work  out  as  follows:  Say 
that  a  local  association  comprised  of  one  hundred  banks 
had  fifteen  directors.  Three-fifths  of  this  number,  or  nine 
directors,  would  be  elected  by  the  votes  of  the  one  hun- 
dred banks,  while  the  remaining  two-fifths  of  the  whole 
number,  or  six  directors,  would  be  chosen  chiefly  by  the 
banks  having  the  greatest  capitalization,  or  on  the  basis 
of  pro  rata  ownership,  in  the  Reserve  Association  of 
America.  In  this  way  the  control  of  the  local  association 
must  rest  inevitably  with  the  majority  of  the  banks  and 
not  with  those  having  the  greatest  capitalization.  The  rep- 
resentative character  of  the  organization  is  thus  assured. 


Branches  of  the  Reserve  Association  of  America 

(7)  In  each  of  the  fifteen  districts  in  which  the  coun- 
try's national  banks  are  divided  shall  be  located  a  branch 
office  of  the  Reserve  Association  of  America. 

Each  of  these  fifteen  branch  offices  shall  have  a  board 
of  directors  equal  in  number  to  the  number  of  local  asso- 
ciations in  the  branch  district.  The  directors  of  each 
local  association  shall  select  by  ballot  one  director  of  the 
Reserve  Association  of  America.  In  addition  there  shall 
also  be  selected,  on  the  basis  of  pro  rata  stock  representa- 
tion, a  group  of  directors  equal  to  two-thirds  the  number 
of  local  associations  in  the  district  where  the  branch  is 
located. 

Another  group,  consisting  of  one-third  the  number  of 
members  of  the  first  group  and  "  representing  the  indus- 
trial, commercial,  agricultural,  and  other  interests  of  the 
districts,"  shall  be  elected  by  the  directors  of  the  first  two 
groups,  each  director  thus  voting  having  one  vote.  In 
this  way  each  branch  of  the  Reserve  Association  shall 
ultimately  have  a  number  of  directors  equal  to  twice  the 
number  of  local  associations  in  the  Reserve  branch  district. 
These  directors  shall  not  be  officers  of  banks. 

The  manager  of  the  branch  shall  be  ex  officio  a  member 
of  the  board  of  directors  of  the  branch  and  shall  act  as 
its  chairman.  At  the  first  meeting  of  this  board  the 

[Page  8] 


The  Aldrich  Currency  System 

directors  shall  be  classified  into  three  groups,  serving 
respectively  one,  two,  and  three  years.  Thereafter  the 
board  shall  be  elected  for  a  term  of  three  years.  * 

Directors  of  the  Reserve  Association  of  America 

(8)   The  board  of  directors  of  the  Reserve  Association  The  chief 
of  America  shall  consist  of  forty-five  members.  Governing 

(a)  Six  of  these  shall  be  ex  officio  members,  the  Gov-        y 
ernor  of  the  Reserve  Association,  who  shall  be  chairman 

of  the  board;  two  deputy  governors  of  the  Reserve 
Association,  the  Secretary  of  the  Treasury,  the  Secre- 
tary of  Commerce  and  Labor,  and  the  Comptroller  of 
the  Currency. 

(b)  Fifteen  directors  shall  be  elected  by  ballot  by  the 
board  of  each  branch  of  the  Reserve  Association  of  Amer- 
ica.   Each  director  (of  the  branch  of  the  Reserve  Asso- 
ciation of  America)  shall  have  one  vote. 

(c)  Twelve  directors   shall  be  elected  by  the  voting 
representatives,  one  representing  the  banks  embraced  in 
each  district.     (See  Section  6.)     Each  voting  represent- 
ative shall  cast  a  number  of  votes  equal  to  the  number 
of   shares   in  the   stock  of  the   Reserve   Association   of 
America  held  by  all  the  banks  in  the  district  which  he 
represents. 

(d)  The  board  as  thus   constituted  shall  then  elect 
twelve  additional  directors  who  shall  "  fairly  represent  the 
industrial,  commercial,  agricultural,   and  other  interests 
of  the  country,"  and  shall  not  be  officers  of  banks.    Direc- 
tors of  the  banks  shall  not  be  regarded  as  officers. 

At  the  first  meeting  of  this  board  all  members  except  Term  of  office 
the  ex  officio  members  shall  be  classified  into  three  classes, 
and  the  terms  of  office  of  these  three  classes  shall  be,  re- 
spectively one,  two,   and  three  years.     Thereafter  the 
board  shall  be  elected  for  a  term  of  three  years. 

No  member  of  any  national,  state,  or  legislative  body 
shall  be  a  director  of  the  Reserve  Association  of  America, 
or  any  of  its  branches,  or  of  any  local  association. 

[Page  9] 


The  Aldrich  Currency  System 

(9)  The  directors  of  the  Reserve  Association  of  Amer- 
ica shall  annually  elect  an  Executive  Committee  and  such 
other  committees  as  the  by-laws  of  the  Reserve  Associa- 
tion may  provide.    The  Executive  Committee  shall  con- 
sist  of  nine   members,   of   which   the   governor   of   the 
Reserve  Association  of  America  shall  be  ex  officio  chair- 
man, and  the  two  deputies  and  the  Comptroller  of  the 
Currency  shall  be  ex  officio  members.    That  provides  for 
all  but  five  members  of  the  Executive  Committee. 

(10)  The  Aldrich  plan  provides  that  the  "executive 
committee  shall  have  all  the  authority  which  is  vested  in 
the  board  of  directors,  except  such  as  may  be  specifically 
delegated  by  the  board  to  other  committees   or  to  its 
executive  officers." 

This  would  unquestionably  be  the  most  influential  com- 
mittee in  the  United  States. 

(11)  There  shall  be  a  board  of  supervision  elected  by 
the  directors  from  among  its  members,  of  which  the  Sec- 
retary of  the  Treasury  shall  be  ex  officio  chairman.    Noth- 
ing is  said  concerning  the  normal  strength  of  this  board 
or  its  special  duties  or  tenure  of  office. 

(12)  The  executive  officers  of  the  Reserve  Associa- 
tion of  America  shall  consist  of  a  governor,  two  deputy 
governors,  a  secretary,  and  such  subordinate  officers  as 
may  be  provided  for  by  the  by-laws.    The  governor  and 
deputy  governors  shall  be  appointed  by  the  President  of 
the  United  States  from  a  list  submitted  by  the  board  of 
directors. 

The  governor  shall  be  subject  to  removal  by  the  Presi- 
dent of  the  United  States  for  cause.  The  term  of  office 
of  the  deputies  shall  be  seven  years,  but  the  two  deputies 
first  appointed  shall  be  for  terms  of  four  years  and  seven 
years  respectively.  In  the  absence  of  the  governor,  or  his 
inability  to  act,  the  senior  deputy  shall  act  in  his  stead. 

Nothing  is  said  as  to  the  salary  that  the  governor  of 
the  Reserve  Association  should  receive.  The  general  idea 

[Page  10] 


The  Aldrich  Currency  System 

is  that  it  should  be  from  $50,000  to  $100,000  a  year.  He 
ought  to  be  made  financially  independent,  so  that  his 
whole  energies  could  be  devoted  to  the  work  in  hand. 

(13)   Each  branch  shall  have  a  manager  and  a  deputy.  Officer,  of 
They  shall  be  appointed  by  the  governor  of  the  Reserve  Branches 
Association  with  the  approval  of  the  Executive  Committee. 
Their  powers  and  those  of  the  various  committees  of  the 
branches  shall  be  prescribed  by  the  by-laws  of  the  Reserve 
Association  of  America. 


PART  II.-FUNCTIONS 

Local  Associations 

(.14)   Any  bank-member  of  the  local  association  may  How  to 
apply  for  a  guaranty  of  the  commercial  paper  which  it  Rediscount 
desires  to  rediscount,  at  the  branch  of  the  Reserve  Asso-  p*Per 
ciation  of  America  located  in  its  district.    For  this  guar- 
anty the  bank  shall  pay  the  local  association  a  commis- 
sion that  is  fixed  by  the  board  of  directors. 

The  feeling  prevails  among  bankers,  however,  that  this 
privilege  would  rarely  be  utilized  by  the  banks  except  in 
times  of  panic  or  great  disturbance.  Some  who  have 
given  most  careful  study  to  the  plan  say  that  the  local 
associations  would  seldom,  if  ever,  meet.  But  the  ma- 
chinery has  been  devised  for  the  express  purpose  of  afford- 
ing to  banks  of  all  communities  precisely  the  facilities 
which  are  available  in  time  of  need  to  banks  located  in 
cities  where  there  are  well-organized  clearing  houses.  It 
is  conceivable,  therefore,  that  the  local  associations  might 
be  of  great  public  service. 

(15)    In  the  event  of  loss  the  guaranty   (by  the  local  Profit  and 
association)  shall  be  met  by  the  members  of  the  local  asso-  L™* 
ciation  in  proportion  to  the  ratio  that  their  capital  and 
surplus  bear  to  the  aggregate  capital  and  surplus  of  the 
local  association.    Profits  representing  the  excess  of  com- 

[Page  11] 


The  Aldrich  Currency  System 


Maximum  of 
Guarantee 


mission  received  over  losses  and  expenses  incurred  shall 
be  distributed  on  the  same  basis. 

(16)  The  local  association  shall  be  authorized  to  re- 
quire additional  security  from  any  member  offering  paper 
for  guaranty.  It  may  also  decline  applications  for  such 
guaranties. 

The  total  of  all  guaranties  given  by  a  local  association 
to  the  Reserve  Association  of  America  shall  not  at  any 
time  exceed  the  capital  and  surplus  of  the  banks  offering 
the  guaranty. 


Banks  and 
Government 
the  only 
Depositors 


May  Buy  and 
Sell  Securities 


Privileges  of  Reserve  Association  Open  to  All 

(17)  All  the  privileges  and  advantages  of  the  Reserve 
Association  of  America  shall  be  equitably  extended  to 
every  national  bank  which  shall  subscribe  for  its  propor- 
tion of  the  stock  of  the  Reserve  Association  of  America 
and  which  shall  conform  to  its  requirements.  * 

(18)  None  but  the  government  of  the  United  States 
and  national  banks  owning  stock  in  the  Reserve  Associa- 
tion of  America  shall  be  depositors  with  the   Reserve 
Association. 

(19)  All  domestic  transactions  of  the  Reserve  Asso- 
ciation of  America  shall  be  confined  to  the  government 
and  the  subscribing  banks,  the  purchase  or  sale  of  gov- 
ernment or  state  securities,  or  the  securities  of  foreign 
governments,  or  of  gold  coin  and  bullion. 

(20)  The  government  of  the  United  States  shall  de- 
posit its  cash  balance  with  the  Reserve  Association,  and 
thereafter  all  receipts  of  the  government  shall  be  depos- 
ited with  the  Reserve  Association  and  (where  necessary) 
with  national  banks  which  the  government  may  designate 
for  that  purpose  in  cities  where  there  is  no  branch  of  the 
Reserve  Association.    All  disbursements  by  the  Govern- 
ment shall  be  made  through  the  Reserve  Association. 

[Page  12] 


The  Aldrich  Currency  System 

This  means  that  at  least  the  banks  of  fifteen  prominent 
cities  (including  New  York  City)  shall  surrender  all 
government  money  that  they  now  hold.  Very  little  gov- 
ernment money  under  the  proposed  system  will  be  depos- 
ited outside  the  Reserve  Association  of  America,  as  the 
branches  of  the  Reserve  Association  of  America  will  be 
located  at  convenient  points  throughout  the  United  States. 

(21)   The  Reserve  Association  of  America  shall  pay  no  Not  to  take 
interest  whatever  on  deposits.  Business  away 

This  is  a  vital  provision  of  Senator  Aldrich's  scheme. 
Its  possible  effect  has  been  viewed  differently  by  different 
bankers.  Some  still  feel  that  the  Reserve  Association  of 
America  will  offer  sufficient  competition  with  banks  of 
New  York,  Chicago,  St.  Louis,  and  other  reserve  cities, 
to  force  the  withdrawal  of  deposits  now  lodged  with  these 
banks  by  interior  institutions. 

This  point,  however,  does  not  seem  to  be  well  taken. 
The  banks  will  deposit  with  the  Reserve  Association  of 
America  nothing  but  a  portion  of  their  surplus  funds. 
That  is  to  say,  an  institution  that  is  accustomed  to  carry, 
for  instance,  $100,000  cash  surplus  in  its  vault,  will 
retain  only  $20,000  in  cash,  or  whatever  is  needed  as  "  till 
money,"  and  surrender  the  balance  to  the  Reserve  Asso- 
ciation of  America.  There  is  no  reason  why  it  should  do 
anything  else.  There  certainly  would  be  no  incentive  for 
it  to  cut  down  the  balance  carried  with  a  bank  in  a  reserve 
city  on  which  it  was  receiving  the  usual  2  per  cent  interest 
allowance. 

It  is  well  to  remember,  also,  that  the  discount  facilities 
of  the  Reserve  Association  of  America  are  in  no  way 
dependent  upon,  or  regulated  by,  the  amount  of  bal- 
ance carried  with  the  Reserve  Association  of  America  by 
the  borrowing  bank.  Any  affiliated  bank  possessing  the 
proper  paper  can  secure  accommodation  from  the  Reserve 
Association  of  America. 


[Page  IS] 


The  Aldrich  Currency  System 


PART  HI-DISCOUNT  FACILITIES 

f(22)    Senator  Aldrich  provides  in  these  words    (the 
exact  language  being  here  quoted)   for  the  unique  dis- 
count facilities  of  the  Reserve  Association  of  America: 
"  28-Day n  "  The  Reserve  Association  may  rediscount  notes  and 

Bilu  bills  of  exchange  arising  out  of  commercial  transactions, 

for  and  with  the  indorsement  of  any  bank  having  a  de- 
posit with  it.  Such  notes  and  bills  must  have  a  maturity 
of  not  more  than  twenty-eight  days,  and  must  have  been 
made  at  least  thirty  days  prior  to  the  date  of  rediscount. 
The  amount  so  rediscounted  shall  in  no  case  exceed  the 
capital  of  the  bank  applying  for  the  rediscount.  The 
aggregate  of  such  notes  and  bills  bearing  the  signature 
or  indorsement  of  any  one  person,  company,  corpora- 
tion, or  firm,  rediscounted  for  any  one  bank,  shall  at 
no  time  exceed  10  per  cent  of  the  capital  and  surplus  of 
said  bank. 

other  Bills  "  The  Reserve  Association  may  also  rediscount  for  any 

depositing  bank,  notes  and  bills  of  exchange,  arising  out 
of  commercial  transactions,  having  more  than  twenty- 
eight  days,  but  not  exceeding  four  months,  to  run,  but 
in  such  cases  the  paper  must  be  guaranteed  by  the  local 
association  of  which  the  bank  asking  for  the  rediscount  is 
a  member. 

Direct  "  Whenever,  in  the  opinion  of  the  Governor  of  the  Re- 

Obiigations  serve  Association,  the  public  interests  so  require,  such 
opinion  to  be  concurred  in  by  the  Executive  Committee  of 
the  Reserve  Association  and  to  have  the  definite  approval 
of  the  Secretary  of  the  Treasury,  the  Reserve  Association 
may  discount  the  direct  obligation  of  a  depositing  bank, 
indorsed  by  its  local  association,  provided  that  the  indorse- 
ment of  the  local  association  shall  be  fully  secured  by  the 
pledge  and  deposit  with  it  of  satisfactory  securities,  which 
shall  be  held  by  the  local  association  for  account  of  the 
Reserve  Association ;  but  in  no  such  case  shall  the  amount 
loaned  by  the  Reserve  Association  exceed  two-thirds  of 
the  actual  value  of  the  securities  so  pledged. 

[Page  14] 


The  Aldrich  Currency  System 

"  The  rate  of  discount  of  the  Reserve  Association,  which  Uniform 
shall  be  uniform  throughout  the  United  States,  shall  be  interest  Rate 
fixed  from  time  to  time  by  the  Executive  Committee  and 
duly  published." 

These  features  of  Senator  Aldrich's  plan  will  excite  whataDis- 
more  discussion  than  any  other  provisions.     Such  facili-  count  Market 
ties  would  undoubtedly  create  a  discount  market  for  the  Would  Mean 
United  States  similar  to  that  provided  at  London  and 
in  other  important  foreign  cities.     Such  a  system  might 
conceivably  bring  about  important  changes  in  American 
business  methods.    They  would  simplify  commercial  paper 
operations  and  make  it  much  easier  and  cheaper  for  mer- 
chants to  market  their  paper.  v* 

With  such  a  discount  system  the  banks  of  tile  larger  Secondary 
cities  could  invest  in  commercial  paper  much  of  the  money  Reserves 
which  they  now  lend  in  Wall  Street.  In  other  words, 
they  would,  with  a  well-organized  discount  market  at  hand, 
be  able  to  make  much  larger  investments  in  commercial 
paper  than  they  do  to-day.  This  would  be  a  manifest 
advantage  to  hundreds  of  banks  that  have  now  "  no  sec- 
ondary reserve  "  whatever  except  what  is  employed  in  the 
Wall  Street  loan  market  or  that  which  is  tied  up  in 
high-grade  bonds  that  are  often  difficult  to  dispose  of  at 
forced  sale. 

There  is  little  doubt  but  that  the  ultimate  tendency  of 
such  a  system  would  be  to  make  money  rates  easier  for 
the  merchant.  The  out-of-town  banks  would  not,  under 
such  a  plan,  advance  from  $100,000,000  to  $400,000,000 
to  Wall  Street  borrowers  on  stock-exchange  collateral  as 
they  did  in  1906  and  as  they  have  done  on  various  other 
occasions  in  recent  years. 

It  is  worthy  of  special  note  that  only  paper  arising  out 
of  "  commercial  transactions  "  may  be  rediscounted  with 
the  Reserve  Association  of  America.  Except  in  times  of 
stress  when,  "  in  the  opinion  of  the  Governor  of  the  Re- 
serve Association,  the  public  interests  so  require,  such 
opinion  to  be  concurred  in  by  the  Executive  Committee  of 
the  Reserve  Association,  and  to  have  the  definite  approval 
of  the  Secretary  of  the  Treasury,"  the  direct  obligations 

[Page  15J 


The  Aldrich  Currency  System 

of  a  depositing  bank  shall  not  be  discounted.  In  no  such 
case  shall  the  amount  loaned  exceed  two-thirds  of  the  value 
of  the  securities  pledged.  This  makes  it  impossible  for 
a  bank  to  secure  from  the  Reserve  Association  of  Amer- 
ica any  loan  on  securities  or  stock-exchange  collateral 
except  when  its  paper  is  indorsed  by  the  local  association, 
or  when  the  situation  is  so  grave  as  to  justify  the  Gov- 
ernor of  the  Reserve  Association  and  the  Secretary  of 
the  Treasury  in  making  what  are  virtually  "  emergency 
loans."  When  these  emergency  loans  are  made,  the 
affiliated  banks  have  to  guarantee  them  and,  in  addition, 
$100,000  of  acceptable  collateral  must  be  pledged  against 
every  $06,000  advanced.  That  would  make  these  loans 
precisely  similar  to  those  made  through  the  medium  of 
clearing-house  loan  certificates  in  the  panic  of  1907. 


(23)    Senator  Aldrich's  plan  also  provides: 

To  Purchase  "  The  Reserve  Association  may,  whenever  its  own  con- 

Acceptances  dition  and  the  general  financial  conditions  warrant  such 
investment,  purchase  to  a  limited  amount  from  a  deposit- 
ing bank  acceptances  of  banks  or  houses  of  unquestioned 
financial  responsibility.  Such  acceptances  must  arise  from 
commercial  transactions  and  have  a  maturity  not  exceed- 
ing ninety  days,  and  must  be  of  a  character  generally 
known  in  the  market  as  prime  bills.  Such  acceptances 
shall  also  bear  the  indorsement  of  the  depositing  bank 
selling  the  same,  which  indorsement  must  be  other  than 
that  of  the  acceptor. 

"  The  Reserve  Association  may  invest  in  United  States 
bonds  and  in  short-term  obligations — that  is,  obligations 
having  not  more  than  one  year  to  run — of  the  United 
States,  or  of  any  state,  or  of  certain  foreign  governments 
to  be  named  in  the  act. 

"  The  Reserve  Association  shall  have  power  at  home 
Gold,  etc.  and  abroad  to  deal  in  gold  coin  or  bullion,  to  grant  loans 

thereon,  and  to  contract  for  loans  of  gold  coin  or  bullion, 
giving,  when  necessary,  acceptable  security  for  their  re- 
payment. 

[Page  16] 


May  Invest  in 
Bonds 


The  Aldrich  Currency  System 

"  The  Reserve  Association  shall  have  power  to  purchase  Dealings  in 
from  its  depositors  and  to  sell,  with  or  without  its  indorse-  E«nange 
ment,  checks  or  bills  of  exchange  payable  in  England, 
France,  or  Germany,  and  in  such  other  foreign  countries 
as  the   board   of   the   Reserve   Association   may  decide. 
These  bills  of  exchange  must  arise  from  commercial  trans- 
actions and  be  of  a  maturity  not  exceeding  ninety  days, 
and  shall  bear  the  signatures  of  at  least  three  responsible 
parties,  of  which  the  last  one  shall  be  that  of  a  deposit- 
ing bank. 

"  The  Reserve  Association  shall  have  power  to  open  Foreign 
and  maintain  banking  accounts  in  foreign  countries  and  Agencies 
to  establish  agencies  in  foreign  countries  for  the  purpose 
of  purchasing  and  selling  and  collecting  foreign  bills  of 
exchange,  and  it  shall  have  authority  to  buy  and  sell, 
through  such  agencies,  prime  foreign  bills  of  exchange 
arising  from  commercial  transactions,  running  for  a  period 
not  exceeding  ninety  days,  and  bearing  the  signatures  of 
two  or  more  responsible  parties." 

(24)  Any  bank  having  a  balance  with  the  Reserve  Transfer  of 
Association  of  America  may,  on  notification  to  the  officers  Balance* 
of  the  Association,  transfer  any  part  of  its  balance  to  any 

other  branch  or  to  any  affiliated  bank.  The  executive 
committee  of  the  Reserve  Association  shall  fix  rates  and 
terms  for  such  transfers  by  mail  or  telegraph. 

(25)  National  banks  are  permitted  to  accept  properly  Acceptances 
secured  commercial  paper  arising  out  of  commercial  trans-  by  .National 
actions,  provided  the  paper  has  not  more  than  ninety  days  Bank* 

to  run.  These  acceptances  must  not  exceed  in  amount 
one-half  the  capital  and  surplus  of  the  accepting  bank. 
This  is  a  very  radical  departure  in  the  banking  busi- 
ness in  this  country  and,  if  permitted,  it  will  require  the 
utmost  diligence  on  the  part  of  the  Comptroller's  office 
to  see  that  the  privilege  is  not  abused,  and  will  also  neces- 
sitate many  changes  in  methods  of  handling  the  credits 
of  the  Nation. 

National  banks  shall  have  authority  to  establish  branches  For  Branch 
in  the  cities  or  towns  where  they  are  located. 

[Page  17] 


The  Aldrich  Currency  System 

PART  IV.— PROVISIONS  FOR  FOREIGN  BANKS, 
TRUST  COMPANIES,  AND    SAVINGS  BANKS 

(26)  A  very  interesting  proposal  relates  to  the  organ- 
ization of  three  new  classes  of  banks. 

(a)  The  first  of  these  is  to  do  business  in  foreign  coun- 
tries.   The  stock  of  such  banks  may  be  held  by  existing 
national  banks.     These  new  banks  may  have  an  office  in 
the  United  States,  but  they  shall  not  compete  with  national 
banks  for  domestic  business  that  is  not  directly  connected 
with  the  business  done  in  foreign  countries. 

(b)  Another  class,  which  is  to  have  a  specially  desig- 
nated name,  is  to  operate  savings  departments  and  make 
loans  on  real  estate.    These  loans  must  not  exceed  a  cer- 
tain proportion  of  the  time  and  savings  deposits  held  by 
these  banks.     The  reserve  requirement  shall  not  be  as 
severe  against  term  deposits  as  against  demand  deposits. 

(c)  The  organization  of  national  banks  having  all  the 
powers  of  trust  companies  and  now  operating  under  state 
laws,  is  provided  for.     These  shall  have  a  special  name 
which  shall  distinguish  them  from  other  banks.     They 
shall  be  national  institutions  and  shall  be  subject  at  all 
times  to  the  usual  inspection  and  supervision  by  the  Fed- 
eral authorities.    They  shall  enjoy  virtually  all  the  privi- 
leges now  provided  by  state  law,  including  length  of 
charter,  etc.     Special  regulations  may  have  to  be  pro- 
vided, however,  so  as  to  bring  them  into  the  system  on 
an  equal  footing  with  the  national  banks. 

Senator  Aldrich  does  not  more  than  suggest  the  for- 
mation of  the  specially  organized  banks.  He  has  not 
worked  out  the  details,  and  it  is  evident,  from  the  rather 
vague  provisions  made,  that  the  proposal  is  a  suggestion 
only  and  will  be  developed  later  on  as  seems  best.  The 
suggestion  is  highly  interesting,  however,  for  the  reason 
that  it  opens  the  way  for  the  Federal  system  to  take  in 
the  great  state  banks,  savings  institutions,  and  trust 
'  companies. 

Inasmuch  as  provision  has  been  made  (in  the  preced- 

[Page  18] 


The  Aldrich  Currency  System 

ing  section)  for  the  operation  of  branches  by  national 
banks,  this  proposal  will  make  it  possible  for  the  very 
strong  state  banks  of  New  York  City  to  enter  the  na- 
tional system  and  to  continue  to  operate  the  branches 
that  are  now  supervised  by  the  New  York  State  Banking 
Department. 

With  a  Federal  charter  the  savings  banks  would  also 
reach  out  for  new  business  and  extend  their  operations  all 
over  the  United  States.  Inasmuch  as  the  national  banks 
have  now  more  than  $500,000,000  on  deposit  in  the  so- 
called  "  savings  departments  "  and  carried  as  "  special 
deposits,"  on  which  a  relatively  high  rate  of  interest  is 
allowed,  it  may  be  pertinent  to  ask  whether  the  existing 
banks,  or  those  not  specially  organized  under  the  special 
classification  herein  provided  as  savings  banks,  would  be 
allowed  to  continue  this  class  of  business.  The  fact  that 
these  specially  organized  savings  banks  would  be  allowed 
to  make  loans  on  real  estate  is  highly  interesting. 

Reports  to  the  Comptroller 

"  The  Reserve  Association  shall  make  a  report,  showing 
the  principal  items  of  its  balance  sheet,  to  the  Comptroller 
of  the  Currency  once  a  week.  These  reports  shall  be 
made  public.  In  addition,  full  reports  shall  be  made  to 
the  Comptroller  of  the  Currency  coincident  with  the  five 
reports  called  for  each  year  from  the  national  banks. 

"  All  reports  of  national-bank  examiners  in  regard  to  Publicity 
the  condition  of  national  banks  shall  hereafter  be  made 
in  duplicate,  and  one  copy  shall  be  filed  with  the  Reserve 
Association  for  the  confidential  use  of  its  executive  officers. 

"  National  banks  of  all  classes  shall  hereafter  make  a  Weekly 
weekly  report  to  the  Comptroller  of  the  Currency  show- 
ing  the  principal  items  of  their  balance  sheets,  such  reports 
to  be  available  for  the  use  of  the  executive  officers  of  the 
Reserve  Association." 

(27)   All  deposits  made  with  the  Reserve  Association  Reservei  of 
by  a  national  bank  shall  be  counted  as  a  part  of  the  legal  National  Bank* 

[Page  19] 


The  Aldrich  Currency  System 

reserve.  Otherwise,  the  reserve  requirements  now  con- 
trolling the  national  banks  shall  prevail,  except  as  other- 
wise modified. 


PART  V.— NOTE-ISSUING  POWERS 

(28)  No  national  bank  shall  take  out  new  bank-note 
circulation,  and  whenever  a  bank  retires  any  part  of  its 
existing  issue  the  notes  shall  not  be  reissued. 

As  to  taking  over  the  $700,000,000  of  United  States 
bonds  now  held  by  the  national  banks  as  a  basis  for  bank- 
note circulation,  Senator  Aldrich  makes  this  proposal,  his 
exact  language  being  quoted : 
TO  Buy  Bonds        "  The  Reserve  Association  must,  for  a  period  of  one 

from  Banks        year,  offer  to  purchase  at (a  price  not  less  than  par 

and  accrued  interest)  the  2  per  cent  bonds  now  held  by 
national  banks  and  deposited  to  secure  their  circulating 
notes.  The  Reserve  Association  shall  take  over  these 
bonds  with  the  existing  currency  privilege  attached  and 
assume  responsibility  for  the  redemption  (upon  presenta- 
tion) of  outstanding  notes  secured  thereby.  The  Reserve 
Association  shall  issue,  on  the  terms  herein  provided,  its 
own  notes  as  fast  as  the  outstanding  notes  secured  by  such 
bonds  so  held  shall  be  presented  for  redemption,  it  being 
the  policy  of  the  United  States  to  retire  as  rapidly  as  pos- 
sible, consistent  with  the  public  interests,  bond-secured 
circulation  and  to  substitute  therefor  notes  of  the  Reserve 
Association  of  a  character  and  secured  and  redeemed  in 
the  manner  provided  for  in  this  act. 

May  Sell  "  The  Reserve  Association  agrees  to  hold,  for  a  period 

$50,000,000  of  not  }ess  than  ten  years,  the  bonds  so  purchased,  or  any 
government  security  which  may  be  exchanged  for  them 
by  refunding  or  otherwise.  The  Reserve  Association, 
however,  shall  have  the  right,  with  the  approval  of  the 
Secretary  of  the  Treasury,  after  two  years  to  dispose  an- 
nually of  $50,000,000  of  the  bonds  held  by  it  to  secure 
circulation.  The  Government  reserves  the  right  at  all 
times  to  purchase  at  par  from  the  Reserve  Association, 

[Page  20] 


The  Aldrich  Currency  System 

through  the  trustees  of  the  postal  savings  bank  or  other- 
wise, any  or  all  of  such  bonds  so  held. 

"  If  the  Government  should  adopt  the  policy  of  issuing  Higher  interest- 
securities  at  a  higher  rate  of  interest  than  2  per  cent,  the  B«™« 
Reserve  Association  shall  have  the  right  to  exchange  at  Secuntie» 
par  the  Government  bonds  which  it  may  have  acquired 
from  the  national  banks,  previously  held  by  them  to  secure 
circulation,  for  any  bonds  bearing  interest  at  a  rate  not 
exceeding  3  per  cent,  but  in  that  event  the  amount  of 
annual  taxes  to  be  paid  on  notes  based  upon  such  new 
securities  shall  be  as  much  greater  as  the  interest  rate  of 
the  new  securities  shall  exceed  2  per  cent. 

"  To  illustrate:  If  the  Government  should  decide  here- 
after to  issue  a  2%  per  cent  bond,  the  rate  of  taxation  on 
currency  issued  by  the  Reserve  Association  thereon  would 
be  1  per  cent,  instead  of  one-half  of  1  per  cent,  as  on  the 
existing  twos,  and  upon  a  3  per  cent  bond  the  rate  of 
taxation  would  be  1%  per  cent." 

(29)   The  Reserve  Association   may  issue   additional  Additional 
notes   other   than  those  that   replace  outstanding  bank  Circulation 
notes,  on  the  basis  of  a  3  per  cent  yearly  tax  for  the  first 
$100,000,000  of  these -additional  notes;  above  $100,000,- 
000,  and  not  more  than  $200,000,000,  the  tax  shall  be 
4  per  cent ;  above  $200,000,000,  and  not  more  than  $300,- 
000,000,  the  tax  shall  be  5  per  cent;  and  above  $300,000,000 
the  tax  shall  be  6  per  cent. 

In  the  words  of  Senator  Aldrieh: 

"  All  note  issues  of  the  Reserve  Association  must  be  Reserve 
covered  to  the  extent  of  at  least  one-third  by  gold  or  other  Against  Notes 
lawful  money,  and  the  remaining  portion  by  bonds  of  the 
United  States  or  bankable  commercial  paper  as  herein 
defined,  or  both.  (It  should  be  provided  either  that  the 
Reserve  Association  may  also  hold  in  its  reserve  for- 
eign coin,  or  that  the  Treasury  will  issue  gold  certifi- 
cates against  foreign  coin.)  The  notes  are  to  constitute 
a  first  lien  upon  all  the  assets  of  the  Reserve  Associa- 
tion, and  adequate  provision  must  be  made  for  their  im- 
mediate redemption  in  lawful  money  on  presentation  at 

[Page  21] 


The  Aldrich  Currency  System 

the  head  office  of  the  Reserve  Association  or  any  of  its 
branches. 

"  The  notes  of  the  Reserve  Association  shall  be  received 
at  par  in  payment  of  all  taxes,  excises,  and  other  dues  to 
the  United  States,  and  for  all  salaries  and  other  debts  and 
demands  owing  by  the  United  States  to  individuals,  cor- 
porations, or  associations,  except  obligations  of  the  Gov- 
ernment which  are  by  their  terms  specifically  payable  in 
gold,  and  for  all  debts  due  from  or  by  one  national  bank 
to  another,  and  for  all  obligations  due  to  a  national  bank. 

"  The  Reserve  Association  shall  at  once,  upon  applica- 
tion and  without  charge  for  transportation,  forward  its 
circulating  notes  to  any  depositing  bank  against  its  credit 
balance." 

(30)  A  very  interesting  controversy  is  certain  to  arise 
over  the  proposal  to  make  the  notes  of  the  Reserve  Asso- 
ciation available  as  bank  reserve  money.  Some  of  the 
best-known  bankers  in  the  United  States  maintain  that 
since  a  balance  carried  by  a  bank  with  the  Reserve  Asso- 
ciation is  counted  as  reserve,  it  would  be  absurd  to  refuse 
to  take  the  note  of  the  Reserve  Association,  which  is 
nothing  but  a  deposit  in  bearer  form,  as  reserve  also. 
Other  bankers,  equally  well  known,  say  that  the  notes  of 
the  Reserve  Association  should  not  be  available  as  reserve 
money  for  the  national  banks.  However  this  may  be, 
the  question  is  certain  to  be  discussed  at  every  bankers' 
convention  during  the  coming  summer  and  fall. 

There  is  reason  to  believe  that  the  Reserve  Association 
of  America  would  at  all  times  have  a  very  large  cash 
reserve,  such  as  the  Bank  of  England  now  maintains. 
Senator  Aldrich  does  not  specifically  say  what  this  reserve 
should  be,  but  the  suggestion  has  come  from  good  sources 
that  it  would  range  from  50  to  80  per  cent.  It  would 
certainly  be  large  enough  to  afford  ample  protection. 


[Page  22] 


INDEX 


FABAGRAPH 

Acceptances  by  national  banks 25 

Purchase  of 23 

Amount  of  capital  stock  of  Reserve 
Association,  which  a  bank  may 

subscribe 2 

Associations  of  national  banks 5 

Formation  of 6 

Minimum  capital 5 

Bills  of  Exchange;  character  of 22 

Purchase  and  sale  of,  by  Reserve 

Association 22 

Board  of  supervision ;  provision  f or . .  11 
Bends;  purchase  by  Reserve  Associ- 
ation   28 

How  handled 28 

Purchased  by  Government 28 

Branches  of  Reserve  Association. ...  7 
Qualifications  and  election  of  direc- 
tors   7 

Number  and  location  of 7 

Cancellation  of  surrendered  capital 

stock  of  the  Reserve  Association.  3 

Capital  stock  of  Reserve  Association .  1 

What  banks  may  subscribe  for  ....  2 
Proportion  which  any  bank  may 

subscribe 3 

Limitations  on  ownership  of 3 

Additional  subscriptions 3 

Charter,  length  of 1 

Commercial  paper  held  by  local  as- 
sociations   14 

Accepted  by  national  banks 25 

Deposit  balance  with  Reserve  Asso- 
ciation    27 

Transfer  of 24 

No  interest  to  be  paid  on 21 

Directors  of  branches,  qualifications 

and  manner  of  election 7 

Directors  of  Reserve  Association — 

qualifications 8 

Discount    of    direct    obligations    of 

banks ...  .22 


PARAGRAPH 

Discount  rate  to  be  uniform 22 

Districts,  designation  of 7 

Division  of  the  country  into 7 

Earnings  of  the  Reserve  Association, 

distribution  of 4 

Executive   committee   of   board   of 

directors  of  the 10 

Exemption  from  State  and  local  tax- 
ation   1 

Fiscal  agent  of  the  Government,  to 

act  as 1 

Foreign  banks 26 

Foreign  accounts  of  Reserve  Asso- 
ciation   23 

Government  and  banks  the  only  de- 
positors with  Reserve  Associa- 
tion   18 

Government  balances  and  receipts 
to  be  deposited  with  Reserve 
Association 20 

Government,  purchase  of  bonds  by 
Reserve  Association 28 

Guaranties  of  commercial  paper,  lim- 
itations on 16 

Head  office,  location  of 1 

Length  of  charter 1 

Local  associations  of  national  banks, 
minimum  number  of  banks  com- 
posing, and  minimum  capital 
of 5 

Location  of  branches 7 

Members  of  State  Legislatures  and  of 
Congress  prohibited  from  being 
directors  of  the  Reserve  Associ- 
ation, or  of  the  branches,  or  of 
any  local  association 8 

Name  of  central  organization 1 

National  bank  holding  stock  of  the 

Reserve  Association 2 

Stock  to  be  surrendered  in  case  of 
reduction  of  capital  or  liquida- 
tion by  the  bank 3 

[Page  23] 


Index 


PARAGRAPH 

National  bank  increasing  capital 
after  subscribing  for  stock  of  the 
Reserve  Association,  must  make 
additional  subscription 3 

National    bank    note    issues    to    be 

stopped 28 

National  banks,  creation  of  a  special 
class  of,  with  savings  depart- 
ments   26 

Formation  of  associations  by 5 

Only  may  subscribe  for  stock  of 

the  Reserve  Association 3 

Subscribing  to  capital  stock  of 
Reserve  Association  must  be  a 
member  of  a  local  association  of 
national  banks 5 

Note  issues  by  national  banks,  pro- 
hibition of 28 

Note  issues  of  the  Reserve  Associa- 
tion— provision  for  redemption. .     28 
Security  for 29 

Notes  issued  by  Reserve  Association, 

how  taxed 29 

Notes   of   Reserve   Association,   for 

what  to  be  received 29 

To  be  forwarded  to  depositing 
banks  against  their  credit  bal- 
ance    24 

Notes  outstanding  may  be  retained, 
but  notes  retired  must  not  be 


Officers  of  the  Reserve  Association. .  .     12 
Ownership  of  shares  of  capital  stock 
of  Reserve  Association  limited 

to  national  banks 3 

Rate  of  discount,  uniform 22 

Real  estate  loans  by  national  banks .  .     26 
Rediscounts  by  Reserve  Association.     22 
Reports  of  national  banks  to  be  made 
to  Reserve   Association,   to   be 

made  weekly 26 

Reports  to  be  made  by  the  Reserve 
Association  to  the  Comptroller 

of  the  Currency 26 

Reserve   Association,   accounts  and 

agencies 23 

[Page  24] 


PARAGRAPH 

To  deal  in  bills  of  exchange 23 

Board  of  supervision  of 11 

Branch  of,  to  be  located  in  each  dis- 
trict    7 

Branches,  how  organized 7 

Branches,  officers  of 13 

Executive  committee  of 10 

Directors    of — qualifications    and 

how  elected 8 

Distribution  of  earnings  of 4 

Issue  of  notes  by 28 

May  invest  in  United  States  bonds 
and  short-term  obligations,  of 
any  State  or  certain  specified 

governments 23 

Reserve  Association  as  fiscal  agent  of 

the  Government 1 

Officers  of 12 

Privileges  of,  to  be  extended  to  all 
banks  subscribing  to  capital 
stock  of,  and  otherwise  conform- 
ing to  provisions  of  act 17 

Cannot  pay  interest  on  deposits .  .     21 
Purchase  and  sale  of  gold  coin  and 

bullion  and  loans  on 23 

Purchase  of  bonds  held  to  secure 

circulation 28 

To  handle  receipts  and  disburse- 
ments of  the  Government  and  to 
have  custody  of  the  Govern- 
ment's balances  20 

To  report  to  the  Comptroller  of 

theCurrency 26 

Reserve  requirements  of  national 
banks  with  savings  depart- 
ments   26 

Reserves  of  national  banks 27 

Savings  departments  authorized ....     26 

Secretary  of  the  Treasury 11 

Surrender    of    stock    by    national 

banks 3 

Taxation,  exemption  from 1 

Tax  on  notes  issued  by  Reserve  As- 
sociation    29 

Transfer  of  deposits 24 

Trust  companies 26 


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